WASHINGTON — Regulators gave banks a tad more breathing room Tuesday in complying with post-crisis rules, extending the deadline for some institutions to complete stress tests and easing the reporting burden related to deposit-insurance assessments.
The Federal Deposit Insurance Corp., Federal Reserve Board and Office of the Comptroller of the Currency issued near-identical final rules requiring banks and holding companies with more than $10 billion of assets to run internal stress tests annually.
But as expected, the agencies gave those with between $10 billion and $50 billion of assets a one-year extension on complying with the rules, and such institutions will not have to start disclosing results until 2015.
"I believe the implementation timeline in the final rule strikes the right balance: institutions with $50 billion in assets or more will implement first, which is appropriate since those larger companies generally are more experienced with this kind of stress testing and may pose greater risks to the system," Comptroller Thomas Curry said at a morning meeting of the FDIC board of directors.
The FDIC board separately signed off on a final rule allowing large banks to use simpler formats for reporting levels of certain higher-risk loans, which are used by the agency to help determine their deposit insurance premiums.
The industry had previously argued the FDIC was using ill-defined reporting requirements. FDIC staff also reported projected losses to the Deposit Insurance Fund from 2012 through 2016 had fallen to $10 billion from $12 billion.
"This report is generally positive. … The outlook for the DIF has been described as consistent with recent industry data that showed improved performance in the banking industry and a decline in the number of problem banks," Martin Gruenberg, the FDIC's acting chairman, said at the meeting.
The agencies' coordinated stress test rules are part of an array of requirements coming out of the crisis for banks to assess their potential resilience in a downturn.
Independent of the Dodd-Frank Act, the Fed has managed numerous stress tests for the largest firms since 2008. The reform law separately requires the central bank to conduct regular stress tests on systemically important firms, including bank holding companies with more than $50 billion of assets.
"Stress testing is a key tool to ensure that financial companies have enough capital to weather a severe economic downturn without posing risk to their communities, other financial institutions, or to the general economy," Fed Gov. Daniel Tarullo said in a press release.
The rules issued Tuesday focus on the stress tests banks and holding companies will do internally. Every fall, starting this November, each of the three regulators will give the institutions under their watch multiple hypothetical scenarios — including relatively stable, adverse and "severely adverse" conditions — to set a basis for their tests. Previously, banks had only had to conduct stress tests under a stable and "severely adverse" conditions. The first reports with test results for the largest institutions will be due Jan. 5.
But following the agencies' proposals earlier this year, regulators sought to respond to concerns smaller institutions have about their relative inexperience with stress testing compared to the largest behemoths.
As a result, institutions with between $10 billion and $50 billion of assets have more time to comply — and will not have to disclose initial results until 2015.
Those with more than $50 billion of assets must start testing based on financial data reported as of Sept. 30 of this year. Following a January reporting deadline, those institutions must make public disclosures summarizing the results sometime between March 15 and March 31 of next year. The process must be repeated every year.
Under a separate final rule, the Fed said bank holding companies with more than $50 billion of assets will have to file company-led stress tests to the central bank twice a year.
But institutions in the smaller bucket do not have to start until next fall. Using scenarios distributed by the agencies in November 2013, those with $10 billion of assets must report their test results to the regulators by January 2014. Banks will not be required to reveal their test results, however, until the second quarter of the following year, after their second round of stress tests. (Regulators do not want to release stress test results without a prior year comparison.)
For all companies subject to the rules, the agencies stipulated that only test results under the most severe adverse scenarios envisioned by the regulators would need to be part of the public disclosures. Previously, banks were required to disclose only their results under the relatively stable test.
The regulators also provided some flexibility for companies in the larger bucket, saying they reserve the right to delay compliance deadlines on a "case-by-case" basis for larger companies that have not had to participate in the Fed's previous stress test exercises.
"Staff is aware … that some" institutions "with assets of $50 billion or more may not be able or ready to conduct the annual stress test this year in a manner that would yield meaningful results," the FDIC said in a staff memorandum released in conjunction with the board meeting.
Meanwhile, the regulators also sounded sympathetic to concerns by industry that the stress test requirements will be burdensome to consolidated organizations with multiple bank charters. (While the regulators often issue joint rules, Dodd-Frank required the agencies to write distinct but similar stress test regulations for the institutions they supervise.) Fed officials said the three banking regulatory agencies worked in close coordination with each other on developing uniform scenarios to avoid duplicative efforts.
The rules clarified that the public summaries of a bank's stress test results can be included in the disclosure a holding company makes about its overall results. And although the final rules did not include specific measures for the three regulators to coordinate the details of their annual scenarios, which would benefit companies that own banks of different charter classes, the agencies said they plan to work together.
"This will need to occur on an ongoing basis as part of the supervisory process, and we are committed to that," George French, a deputy director in the FDIC's division of risk management supervision, told the board.
Separately, the FDIC tweaked a March proposal easing the reporting burden for institutions in the FDIC's large-bank deposit insurance pricing scheme.
As part of a new pricing formula launched in 2011 for banks more than $10 billion of assets, the FDIC had included an institution's "leveraged" business loans and "subprime" consumer loans among factors used to calculate a bank's assessment.
Responding to industry arguments that those items were out of whack with traditional reporting, the FDIC proposed using revised terms thought to be more accessible, such as "higher-risk" commercial and industrial loans and "higher-risk consumer loans and securities," while also defining the revised terms. The final rule sought to further simplify the definitions.
"These revisions were really an effort to engage with the industry and come up with a happy medium, so we could address some of their concerns … while meeting our needs" in the assessment system, Gruenberg said.